Internet users in India are set to pay less due to a developing price war between two state-run telecom firms, Mahanagar Telephone Nigam Ltd (MTNL) and Videsh Sanchar Nigam Ltd (VSNL).

MTNL is to slash its internet access tariff by 15% and is also to offer an "unlimited usage" scheme where customers would only be required to pay a flat access charge on internet usage - a first for India.

The MTNL offer, announced earlier this week, has already been matched by
its rival public sector giant, VSNL.

The price war was actually triggered by VSNL a few weeks ago when it slashed off-peak hourly rates by 50%.

Internet access could become cheaper

VSNL has now announced plans to change its current website
into an India interest portal, which would offer news
and current affairs as well as information on business, finance and Indian films.

Asish Pitley, head of research, JP Morgan (India), says the price war between the firms is the beginning of an attempt by Indian companies to gather a loyal following.

Offering freebies to attract prospective customers to their site has been a market practice in more developed countries for some years now.

The Indian market has only now woken up to this concept because until recently, the domestic
internet market was under a state monopoly.

Acquisition

The price war comes in the wake of an internet deal which has made
corporate India sit up and take notice.

An Indian private internet
service provider, Satyam Infoway, recently announced the buy-out of an
internet portal - Indiaworld.com, a five-year old portal with an annual
turnover of 12.5 million Rupees ($287,819).

Greater choice, better technology

Following the deal the share value of
Satyam Infoway - listed less than two months ago on Nasdaq where it
opened trading around $30 - has shot up dramatically and it
closed above $150 on Tuesday.

Now MTNL is also planning a
listing on the New York Stock exchange early next year.

The Satyam deal notwithstanding, private internet service
producers (ISPs), allowed to operate by the Indian government since November last year, are in no position to push the access price down as all calls are still routed through the state-run department of telecommunications.

So while Indian internet markets have
opened up, pricing is still restrained by state monopoly.

This is in sharp
contrast to countries with more liberal telephone policies, where access is either completely free or comparatively much cheaper than
prevailing rates in India.

Market analysts say cheaper access to the net holds the key to internet future in India.

The potential is immense. In a country with a population of over one billion, India still has less than 300,000 internet subscribers.